AMR Has Loss, Plans Unit Sale
Updated from 3:03 p.m. EDT
American Airlines doesn't care if it remains the largest U.S. carrier as the industry consolidates, CEO Gerard Arpey said Wednesday, as the carrier reported a $328 million first-quarter loss.
"We are fortunate to have a very strong network irrespective of any consolidation that may or may not take place," he said during an earnings conference call. "Size is not the issue, we think, for us or anyone. The real challenge is being profitable."
For now, American parent
AMR
(AMR)
operates the world's biggest carrier. But that might not remain the case if the proposed merger of
Delta
(DAL) - Get Report
and
Northwest
(NWA)
, announced Monday, goes through.
Arpey said American would benefit from the Delta and Northwest deal in the sense that wage increases at the combined carrier would bring labor costs closer to what American pays.
For the quarter, AMR's loss equaled $1.32 a share. Analysts surveyed by Thomson Financial had expected $1.34. Revenue rose 5% to $5.7 billion and was in line with estimates. American said weather and maintenance-related cancellations cut revenue by $75 million to $80 million.
In the same quarter a year earlier, American reported a net profit of $81 million, or 30 cents a share. The carrier said it paid $665 million more for fuel in the 2008 quarter than it would have paid at prevailing prices a year earlier. "We are nowhere near recovering this extraordinary increase in fuel price," Arpey said.
Meanwhile, CFO Tom Horton said second-quarter bookings have dropped about 0.7%, "down a little, but its fair to say bookings have held up fairly well relative to what we've seen in downturns past."
AMR also said it will sell asset manager American Beacon Advisors to Lighthouse Holdings, which is owned by investment funds affiliated with private equity firms Pharos Capital Group and TPG Capital. AMR will receive about $480 million and will retain a 10% stake in the business.
Additionally, American will reduce mainline capacity by 1.4% during 2008, reflecting a 3.6% domestic reduction and a 2.5% international increase. Consolidated capacity will drop by 1.5% this year.
By comparison, American had planned a 2008 mainline capacity increase of 0.2% after a 1.1% domestic decline. It had expected consolidated capacity to be flat and for regional capacity to fall by 0.6%. However, regional capacity is now slated to decline by 2.1%.
American will also accelerate the replacement of its aging MD-80 fleet with Boeing 737-800s, taking delivery of 34 in 2009 and 36 in 2010. Previously, it had announced plans to take 23 in 2009.
During the quarter, mainline revenue per available seat mile rose by 6.5%, as capacity fell by 1.5%, largely as a result of cancellations and early retirements by pilots. Mainline load factor was 79.1%, a first-quarter record. Yield rose 5.1%.
On the expense side, cost per available seat mile, excluding fuel, rose by 3.3%. Including fuel, CASM was up 15.8%.
Looking ahead, for the April quarter, American had a loss "in the high tens of millions" associated with the cancellation of more than 3,000 flights for maintenance checks, Horton said. The figure represents lost revenue, as well as expenses. AMR shares rose 4.1% to $8.92.